Chevron deal gives Pennzoil 266 wells

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PENNZOIL, the independent Texas oil company, has ended a takeover battle that started almost a decade ago by agreeing to swap half its dollars 2.4bn (pounds 1.4bn) stake in Chevron for 266 of the rival firm's oil and gas wells.

The deal, valued at dollars 1.17bn, will make Pennzoil America's third-largest independent petroleum producer, doubling its daily US oil production to 67,500 barrels per day.

The agreement also brings to a close a dispute that began in 1984, when Pennzoil and another big oil company, Texaco, were competing to buy the former Getty Oil.

Texaco won the battle for Getty, but a court later awarded Pennzoil dollars 3bn because of irregularities in the winning bid. Pennzoil used the money to buy 9.7 per cent of Chevron in 1989, representing the stake as a substitute for the Getty shares it was illegally denied.

Chevron, however, regarded the stake as hostile, and the two companies have been involved in legal wrangling for the past three years. That dispute has been put to rest by this week's deal.

The swap also bolsters Pennzoil's case that the award from Texaco should not be taxed, allowing the Houston-based company to argue that the oil and gas fields are a replacement for the Getty properties it should have acquired in 1984.

Wall Street welcomed news of the swap yesterday, noting that the deal both facilitates Chevron's shift to offshore production and makes Pennzoil's fields in Texas and the Gulf of Mexico more efficient.

Pennzoil also claimed that the cash flow the newly acquired wells will generate will be four times the size of the dollars 52m in annual dividends it now receives from Chevron.